Title VII of the Civil Rights Act of 1964, which forbids
discrimination in hiring on the basis of race, sex, religion and
nationality, applies only to businesses with 15 employees or more.
The same goes for the Americans With Disabilities Act (ADA). Do
these laws apply to your business?

That might depend on how you count employees. If you have, say,
three employees or 30, the answer is clear. But what if the number
hovers right around 15, depending on how you count job-sharing
teams, part-timers and employees on leave?

The answer could be crucial if you're sued by a former
employee, because the coverage threshold is often the first line of
defense for a company facing a Title VII or ADA lawsuit. If you can
persuade a judge the law doesn't apply to your business, you
can have the lawsuit dismissed.

Stricter Definition

Under Title VII, a company is covered if it "has 15 or more
employees for each working day in each of 20 or more calendar weeks
in the current or preceding calendar year." That definition is
ambiguous; does it mean 15 or more employees actually in the office
and working or simply 15 or more employees on the payroll? In
January, the U.S. Supreme Court issued a ruling that clarifies the
issue.

Three years later, Walters sued Metropolitan and its owner,
Leonard Bieber, charging illegal retaliation. Metropolitan asked a
district court judge to dismiss the suit, claiming it did not have
15 employees and thus was not covered by Title VII. When the
district court agreed and dismissed the suit, Walters appealed.

The Court of Appeals affirmed the district court's decision,
relying on an earlier case in which employees were counted toward
the 15-employee threshold only on days when they actually worked or
were paid despite being absent. When Walters appealed again, the
U.S. Supreme Court agreed to decide the matter once and for
all.

The court considered the implications if it endorsed the
counting method Metropolitan advocated: including employees based
on how many people were actually working or compensated for working
that day. At the time, Metropolitan had two part-time hourly
employees who normally skipped one workday each week. Only if these
two were not counted would the company fall under the 15-employee
threshold.

To determine how many employees were working or otherwise
compensated each workday of the two-year period, the parties would
have to spend 10 months poring over Metropolitan's payroll
registers, time cards and other records to determine how many
employees were at work, on salary, or on paid holiday, vacation or
sick leave each day. The court decided that process was far too
complex and endorsed a much simpler method: looking at how many
employees were on the payroll each week. By that standard,
Metropolitan had 15 employees on the payroll for 20 or more
calendar weeks--and thus lost its case.

"This is a pretty narrow, technical ruling," says
attorney and professor Wayne Eastman of Rutgers University Graduate
School of Management in Newark, New Jersey. The implication,
Eastman says, is if you have 15 employees who work every week but
only one day a week, your company can be sued under Title VII
because you have 15 employees on the payroll per week.

Implications For You

The decision is likely to affect more than Title VII cases. Eric
Dreiband, an employment attorney with Mayer, Brown & Platt in
Chicago, notes other federal laws have similar wording, including
the Age Discrimination in Employment Act of 1967 (which has a
threshold of 20 employees) and the Family and Medical Leave Act
(which has a threshold of 50).

Dreiband says many states and municipalities have
anti-discrimination laws with lower thresholds or none at all; you
can be sued under some of these laws with three employees or fewer.
However, plaintiffs would generally rather sue in federal court,
where they're entitled to a jury trial.

What does the ruling mean for small employers? Patrick Falahee,
the Chicago attorney who defended Metropolitan before the Supreme
Court, says employers who haven't yet reached the Title VII
threshold may want to consider the implications of adding that 15th
employee. "The question is whether you want Big Brother
looking over your shoulder and second-guessing employment
decisions," Falahee says. Not that employers are looking for
freedom to discriminate, he explains: "Even if the claim is
false and without merit, the cost of defending [yourself] can run
to six figures."

In one sense, Falahee adds, the Supreme Court's decision may
hurt the very people the civil rights laws are designed to help.
Suppose you have 13 employees and need to add a receptionist.
Should you hire a student who can only work three days a week and a
young mother or a senior citizen to work the other two? You'd
be better off with one full-time employee because the part-timers
would give you 15 or more employees and make your business subject
to job bias lawsuits.

What's an employer to do?

Be aware of the thresholds and the way employees are now
counted: by the number of employees on the payroll, whether or not
they're working full time.

Before taking action against an employee, consult an attorney to
make sure you do it without bias.

Look into employment practices liability insurance, a relatively
recent form of insurance that for a modest premium covers the cost
of defense in discrimination cases, plus compensatory damages if
you lose. Most "comprehensive" liability policies for
businesses exclude job bias lawsuits. Learn what's covered and
what's not, just in case.

Steven C. Bahls, dean of Capital University Law School in
Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane
Easter Bahls specializes in business and legal topics.